Expand the definition of your target market. Vegans and vegetarians, on the contrary, are often perceived as struggling to get enough protein and iron daily, as unhealthy weaklings. When grocery stores resisted this in the beginning Beyond Meat declined to place its product in those stores and decided to wait until a grocery store embraced its vision. From the Beyond Burger to Beyond Sausage, and their latest Beyond Meatballs this brand is really on a roll. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. You can see all the adjustments made to Beyond Meats balance sheethere. Combine revenue growth with the fact that Beyond Meats net income margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) are on an improving trajectory. Figure 8: Current Valuation Implies Massive Revenue Growth, Significant Downside in a More Realistic Scenario. Balance Sheet: I made $290 million of adjustments to calculate invested capital with a net decrease of $228 million. This indicates an extremely successful uptake by consumers. Jurgens brings over 20 years of experience with a proven record of growing sales and profit through strategy, branding, marketing, operational excellence and innovative approaches. Below is a short list of some of Beyond Meats alternative meat competitors: This list is not exhaustive and doesnt include any of the traditional meat products that continue to garner a large share of consumer dollars. Founder and Tech Inventor at Princess Technologies. People tend to associate meat with strength, with muscles. Impossible Foods sells slightly different products: Impossible Burger, Impossible Pork, Impossible Sausage. Your brand, too, needs the liberty to change. About 70% of the global population is cutting down its meat consumption. Devault, PA Operations - DEPA Production On-site. By shifting from animal-based meat to plant-based meat, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare. Our marketing speaks very much to the ability for the highest-performing people in our society to perform not just as good, but better as result of the consumption of plant-based meat, particularly, our plant-based meat.. You can see all the adjustments made to Beyond Meats income statementhere. Finally, in 2021, Beyond Meat began supplying Taco Bell with plant-based meat products and partnered with PepsiCo to develop and market plant-based drinks and snacks. It's unfortunately difficult for investors to gauge the impact of this promotion on profits, since Beyond Meat books the discount as a reduction in sales to arrive at net revenue, rather than a reduction in gross profit margin. Stage of Market Lifestyle- The stage of the market lifestyle will influence the company on a few different categories. For example, without any existing shelf space, and only recently announcing an e-commerce platform, Beyond Meat must spend more on not only convincing consumers to try their products, but also on retailers to display their products. Ads like this are created to convert the masses instead of targeting a niche market. Beyond Meat and Impossible Foods have many common points. The Motley Fool owns shares of and recommends Beyond Meat, Inc. In any case, I view recent moves as encouraging as Beyond makes moves to improve its footing to grow as a . To illustrate, the company repackaged a portion of its slow-moving food service inventory for retail consumption. The bottom line is that even if Beyond Meat can grow revenue by 51% compounded annually for five years at an 8% NOPAT margin, the firm is worth much less than $135/share. Even with that success, Brown continues to think big . The mission of the company is focused on plant-based meat alternatives, using pea and other plant protein isolates. Beyond Meat Announces New Executive Leadership Appointments to Accelerate and Support the Company's Vision for Strategic Growth. These features also convince consumers that Beyond Meat burgers are not your average veggie burgers which were never popular with mainstream consumers. In order to increase its manufacturing capacity, in June 2018, Beyond Meat opened a second production facility in Columbia, Missouri and a third in El Segundo, California. Figure 11: Implied Acquisition Prices to Create Value. Per Figure 4, Beyond Meats operating expenses as a percent of revenue have actually increased over the past twelve months from 97% in 2Q19 to 107% in 2Q20. Beyond Meats success comes partially from the fact that it has been able to evolve alongside or prior to consumer demand. And if this happens, you need to have others you can roll out. KFC and Beyond Meat are partnering with YouTube star and influencer Liza Koshy to help reveal the debut. Plant-based foods are more than a fad, they are a huge economic trend. Plant based meats are not filled with dead animals which include bacteria growth and can contain other substances such as feces. Even in the most optimistic of scenarios, Beyond Meat is worth less than its current share price. This report helps investors of all types see just how extreme the risk in BYND is based on: Growth Will Slow Down, but Competitors Wont. 2019: A Change In the Branding Strategy With the Arrival of Stun. The company has a culture of accountability among its employees: they are all responsible for driving up performances by making suggestions, pointing out what is not working. 2 Reasons to Avoid a Roth 401(k) for Your Retirement Savings, Warren Buffett's Latest $2.9 Billion Buy Brings His Total Investment in This Stock to $66 Billion in 4 Years, Want $1 Million in Retirement? Figure 7: Current Valuation Implies Drastic Profit Growth. As Kroger invests further in its Simple Truth brand, wed expect the firm to allocate more shelf space to its own in-house brands, rather than a competitor such as Beyond Meat. First, consumers expectations for new products and innovation will rise over time. Competitors, Serious Uphill Battle for Beyond Meat to Improve Profitability. Resourceful, strategic, and self-directed leader with a proven record of achievement in global account management, business development and sales strategy leadership. News Corp is a global, diversified media and information services company focused on creating and distributing authoritative and engaging content and other products and services. Changes that have inspired the birth of Beyond Meat is the increased demand on plant-based products. This competitive disadvantage only makes Beyond Meats path to sustainable profitability that much more difficult. Beyond Meat Inc. BYND, -7.36% is revamping its retail sales strategy to center on five major grocers and hiring a new marketing executive as part of an effort to reinvigorate the plant-based food . There are several lessons to be learned from Beyond Meats story. The redistribution of cash flow to its investors is a challenge. Figure 3: Operating Expense as % of Revenue: Beyond Meat vs. After all, the positive choices we make every day - no matter how small - can have a great impact on our world. Furthermore, many of the firms in Figure 2 have other key advantages multi-year relationships and existing distribution networks with grocery stores and quick-serve restaurants such asTyson, or in the case of Kroger, direct control of distribution and the end-consumer relationship. Beyond Meatis one of them for the plant-based segment. It has put them in a competitive sustainable advantage position because others will have to spend a lot of money on research and development to get their plant-based burger to taste like theirs. Sign up for our Newsletter to receive free, insightful tips on all things brand! Figure 7 compares the firms implied future NOPAT in this scenario to its historical NOPAT. This is, in fact, after BYND partnered with Starbucks, Yum Brands, and Sinodis. Market Drivers- Market drives come from the availability of knowledge on healthy products vs. mass marketing for bad products. As an emerging growth company, Beyond Meat has opted to comply with the executive compensation disclosure rules applicable to smaller reporting companies, which require less stringent disclosures regarding compensation. However, some investors have growing concerns about the companys ability to maintain these results. Economic earnings, which account for the unusual items on the income statement and . While vegans and vegetarians are less picky when it comes to whether or not meat substitutes really taste and feel like meat, regular meat-eaters are much more tricky to convince. But what if youre looking for a more balanced portfolio instead? Beyond Meat was originally founded in 2009 by Ethan Brown, who worked with two University of Missouri professors, Fu-hung Hsieh and Harold Huff, to develop meatless, plant-based protein. All rights reserved. However, Kelloggs appears it is ready to launch Incogmeato and recently partnered with Postmates to deliver free Incogmeato samples to residents of Denver and Dallas. Case in point, revenue grew 239% YoY in 2019, 141% YoY in 1Q20, and 69% YoY in 2Q20. Figure 6: Beyond Meats Adjusted EBITDA Misleads on Profitability, BYND Adjusted EBITDA Misleads On Profitability, Doing the Math: Valuation Implies Significant Disruption of the Entire Meat Industry. Brown. The company's second-quarter 2020 earnings report, released Tuesday after the markets closed, revealed that it's still experiencing rampant growth. Dont become so attached to a product that you arent willing to see when it no longer serves you. Purchase Decision- When consumers are informed of the evaluation of options, information is readily available, and they have recognized a problem, it is so easy for consumers to make a newly informed decision. Nestl, JBS, and Tyson have all recently launched plant-based burgers. For example. This is a full-time position, reporting to the Chief Legal Officer. Even more impressive is that Beyond Meat is, well, a food company (it develops plant-based meat products) and the sales for 2018 were only $87.9 million (and yes, the company has yet to post a . The difference with other plant-based patties is that their name is a synonym of quality for their clients. These days, fewer investors pay attention to fundamentals and the red flags buried in financial filings. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Beyond Meat constantly reinvests their earnings in further research and development, as well as in marketing, and in scaling up production and distribution. With low margins and little control over the majority of distribution, I think shares can fall sharply from current levels. Digital Marketing @ Beyond Meat | Award-Winning Author | Driving Success Through Tech, Creativity, & Strategy Pittsburgh, Pennsylvania, United States 631 followers 500+ connections Word of . In order to get ahead of the competition, never stop innovating. Therefore, they have a lot of time and competitive advantage before others to create the most well-known category before all other competitors. Clearly, vegan meat alternatives were no longer a fad. This created the need for healthy products. Since going public in early May, Beyond Meat's stock has soared more than 450 percent and its market value is over $8 billion. No more comparison with animal meat products: Beyond Meat has nothing more to prove, its products are famous, recognized as good for the palate and for our health. By constantly innovating, pivoting when necessary, and having a real eye for detail, in just under 10 years, Beyond Meat has become one of the biggest names in a previously unheard-of industry. The Motley Fool has a disclosure policy. While Beyond Meat could continue to rally, it faces four challenges that. And by 2020, Beyond Meat had launched an e-commerce site that served as a direct-to-consumers portal, allowing customers to purchase their products individually. Given that most plant-based protein products are now aiming for the same goal imitating the taste and texture of meat it stands to reason that as the plant-based protein market matures, differentiation between products will diminish as all products begin to taste more and more like meat. Evaluation of Options- Evaluating the options of Beyond Meat vs. regular meat. The first six months of 2020 have visibly transformed Beyond Meat's(BYND 5.83%) approach to marketing its plant-based, meat substitute products. Organic growth along with benefits from the recent partnerships are expected to support continued healthy growth in retail as well as the restaurant segments of Beyond Meat, potentially taking the companys revenues to almost $1.1 billion by 2023. Plant based burgers are not new but Beyond Meat has been able to capture more of the . But consumers shop there because the low price points allow them to have a constant rotation of outfits. Made from "soy powder, gluten-free flour, carrot fiber and other ingredients", they used a food extrusion machine to create a chicken-like texture. This created a need for plant-based foods to replace the broken system of meats. They did not service the vegan and vegetarian markets as traditional players did. Published May 20, 2021. Beyond Meat has been working with them since February 2019. Apply. This would make growth in Beyond Meats stock price a real possibility in the next two years, taking its stock price to $200. Although its products are plant based Beyond Meats marketing does not explicitly call that out. Recent Improvement in Profitability Was Short-Lived. Links: https://zaap.bio/lillytalavera. Over the TTM period, FCF is -$164 million. It provided Beyond Meat with one of the best forms of advertising, credibility. The implied stock values in this scenario are significantly below Beyond Meats current price. Beyond Meat has earned a premium name thanks to its marketing strategies, but this premium is too much. People are perfectly happy eating vegan food as long as they dont know thats what theyre doing,saysCarol J. Adams, author ofThe Sexual Politics of Meat. The future is one where the meat case is going to be called the protein case and consumers will be able to buy plant-based and animal-based protein side by side,saidEthan Brown, founder and CEO of Beyond Meat. Data by YCharts Kellogg ( K ) and Conagra ( CAG ) are already big established brands, that . While I chose Kraft Heinz, analysts can use just about any company to do the same analysis. Figure 10 shows the implied values for BYND assuming Kraft Heinz wants to achieve an ROIC on the acquisition that equals its WACC of 4.4%. Before the advent of the COVID-19 pandemic, Beyond Meat's "go-to-market" strategy -- its plan for marketing and promoting its brand, coupled with its framework for product distribution -- relied heavily on foodservice penetration. BYND entered into a partnership with Alibaba Group, whereby its products will be available in Freshippo stores (Alibabas supermarkets) in Shanghai. Below are specifics on the adjustments I make based on Robo-Analyst findings in Beyond Meats 10-Q and 10-K: Income Statement: I made $33 million of adjustments, with a net effect of removing $21 million innon-operating income(5% of revenue). Well, when Beyond Meat chose to switch suppliers, they allegedly shared details of Don Lees manufacturing process which Don Lee saw as a breach of contract. Still, disputes aside, Beyond Meat has been doing very well these past few years. 3. This all ended with Beyond Meats new look. But how they handled it is what makes them a successful brand. The larger the firm gets, the more difficult it becomes to achieve large year-over-year (YoY) growth rates. They began targeting not only vegetarians and vegans, but also and mainly meat-eaters; flexitarians. Furthermore, Beyond Meat has a history of significant free cash flow (FCF) burn that is unlikely to change anytime soon. Sounds too good to be true, right? This is very rare: imagine if menus displayed all the product brands they use to cook the dishes you eat. We can perceive more confidence from the company, in line with its media and advertising strategy. [1]My firms core earnings are a superior measure of profits, as demonstrated inCore Earnings: New Data & Evidencea paper by professors at Harvard Business School (HBS) & MIT Sloan. If revenues expand 2.7x over the next few years, instead of the P/S shrinking from around 17x presently to less than 10x, a scenario where the P/S metric falls more modestly, perhaps to about 13x looks more likely, considering the fact that profitability is also projected to see sharp improvement. However, the fundamentals reveal this stock is more style than substance. Lots of small companies have also emerged and targeted the same audience, such as Purple Carrot or Sunfed Meats. Total revenue jumped by 69% against the prior-year quarter to $113.3 million. Baseball player David Wright was the first celebrity to sign a contract with the brand. Part of Beyond Meats strategy is to redefine what the best source of protein is. 2. https://www.wsj.com/articles/beyond-meat-hires-marketing-executive-revamps-retail-strategy-11675379688. But for a young organization that wants to leapfrog rivals in gaining plant-based mindshare, the shift isn't illogical, and it may result in a durable competitive advantage. For comparison, this scenario implies Beyond Meat would generate more sales than incumbent competitors such as Pilgrims Pride (PPC), ConAgra Foods (CAG), and Hormel Foods (HRL) in their last fiscal years. This article will take a deep dive into Beyond Meats journey to success and provide some tips other brands can use to fuel their own growth stories. Their main rival is the company Impossible Foods. Heres a quick summary for noise traders when analyzing BYND: Executive Compensation Adds Additional Risk. Beyond Meat burgerseven have grill marks further convincing consumers that maybe it really is like meat. Beyond Meat was one of the most successful IPOs (Initial Public Offerings) of 2019. In 2014 they developed their first simulated beef product and expanded their presence from 1,500 to 6,000 stores in the US. And this failure didnt break them for a few reasons most importantly, because they already had new products in the works. Beyond Meats real breakthrough is not landing in the meat aisle or having celebrity endorsements but creating a plant based product people actually want to eat. The first six months of 2020 have visibly transformed Beyond Meat 's ( BYND -0.58%) approach to marketing its plant-based, meat substitute products. And now the ravenous race for market share begins, with Beyond Meat and Impossible Foods (which has raised nearly $500 million in debt and equity) in prime position to . Beyond Meat is seeking a marketing, advertising, regulatory, and trademark attorney with 10-12 years of experience. In the first scenario, the estimated revenue growth rate is 61% in year one, 55% in year two, and 47% in year three, or equal to consensus. After adjusting for this liability, I can model multiple purchase price scenarios. This adjustment represented 3% of reported net assets. Moral of the story? While comprising only 5% of its total revenue, Tyson outspent Beyond Meats SG&A by 20 times over the TTM. Figure 11 shows the implied values for Beyond Meat assuming Kraft Heinz wants to achieve an ROIC on the acquisition that equals 6%. To do so, employees need to very clearly understand the companys priority: is it safety, profits, brand fidelity? Many undercover operations are conducted to get footage and investigate what is really going on inside the slaughter houses. In the second scenario, I use 61% growth (2020 consensus estimate) for all years to illustrate a best-case scenario where I assume Beyond Meat could grow revenue faster within the larger distribution network, resources, and customer base of Kraft Heinz. the stock is worth just $30/share today - a 57% . Asit Sharma has no position in any of the stocks mentioned. Considering these competitors are already supplying plant-based protein products, Beyond Meat faces an increasingly uphill battle to reach the size it needs to match the cost efficiencies of larger competitors like these two established firms. They both rearrange proteins to create their plant-based products. Gross profit was $122.3 million, or gross margin of 30.1% of net revenues; Adjusted gross profit was $133.7 million, or Adjusted gross margin of 32.9% of net revenues, reflecting exclusion of expenses attributable to COVID-19. Marketing News & Strategy Here's how KFC is marketing its updated Beyond Meat faux chicken in two markets Beyond Fried Chicken could go national if strong results are seen in Charlotte and. However, given the low margins and overvalued stock price, I think it would be unwise for a larger firm to acquire Beyond Meat at current levels. The alternative meat producer is reportedly focusing its retail . And the organization continues to spill a slight amount of red ink, generating a loss of $10.2 million over the last three months versus a loss of $9.4 million in the second quarter of 2019. Having the largest natural and organic food retailer in the United States take a chance on this relatively unknown brand gave other grocery retailers an incentive to try the same product placement in their stores. This vision can be found throughout Beyond Meats marketing collateral. Per Figure 2, Beyond Meats NOPAT margin and return on invested capital (ROIC) are below each of the competitors listed above, and well below the market-cap-weighted average of all the Food Processing firms under coverage. When Beyond Meat was met with the failure of their Chicken-Free Strips their first real product they didnt fold. We believe there's a better way to feed our future. Extensive background in CPG . The company's second-quarter 2020. The following table, covering Q2 2020, shows how drastically this dynamic has changed, as management has leaned into winning customers at the grocery shelf during a near-cessation in dining-out activities: Beyond Meat is now incentivizing potential retail customers to try its products via a limited-time offering it dubs the "Cookout Classic" burger value pack. This year also saw Beyond Meat break into the international market partnering with the likes of Tesco in the UK to A&W in Canada). Leverage partners with larger platforms to expand reach. The organizational goals have to be settled and explained. This is one of the biggest first-day pop-ups in recent history. For instance, over the TTM, ConAgra spent 15 times more on SG&A than Beyond Meat. A staff member at Business Insider that cooked and reviewed a Beyond Meat burger at homesaidthis about it: overall, it was tasty and juicy, unlike most veggie burgers which can often taste closer to cardboard than beef. Marketing is always easier when you have a great product because you dont have to try quite as hard to get people to try it as consumption spreads more organically over time via. It is better to create a plant-based meat product, not only because of meat expiration issues, but bacterial issues with animals, mad cow disease, and so many other factors that clearly make eating plants natural to humans and such a better option. They exploit their established brand engagement to build more brand equity, at a low cost, because they dont pay a cent for restaurants to make this kind of indirect advertising for them. Though the stock is likely to remain volatile in the near term, the strong growth outlook will help it once again reach the $200 level once the current crisis abates. We visited . One of Beyond Meat's biggest and earliest investors was Tyson Foods, which had a 5 percent stake in 2016, later raised to 6.52 percent. What can you learn from this? Its worth noting that any deal that only achieves a 4.4% ROIC would not be accretive to shareholder value, as the return on the deal would equal Kraft Heinzs WACC. Dollar figures in millions. However, it hasnt always been smooth sailing for Beyond Meat in March 2019, Don Lee Farms filed a civil suit against its former business partner. This is one of the biggest first-day pop-ups in recent history. The superior scale of Beyond Meats peers will also challenge what the firm believes to be a critical competitive advantage its innovation. See Figure 8 for details. In this scenario, Beyond Meat would earn ~$12.5 billion (slightly more thanMarketsandMarkets2019 estimated global plant-based meat market size of $12.1 billion) in revenue in 2031, compared to $401 million TTM. Each implied price is based on a goal ROIC assuming different levels of revenue growth. This has come from the increased consumer-knowledge on healthy products, plant-based diets,. Of course, this is wrong, and our body adapts to whatever we give it. Beyond Meat, Inc. (NASDAQ: BYND) is one of the fastest growing publicly-traded food companies in the United States, offering a portfolio of revolutionary plant-based proteins made from simple ingredients without GMOs, bioengineered ingredients, hormones, antibiotics or cholesterol. Net revenues decreased 1.2% to $100.7 million in the fourth quarter of 2021, compared to $101.9 million in the year-ago period. There are limits on how much Kraft Heinz should pay for Beyond Meat to earn a proper return, given the NOPAT or free cash flows being acquired. For reference, Beyond Meats invested capital has increased by an average of $84 million (28% of 2019 revenue) over the past two years. Figures 10 and 11 show what I think Kraft Heinz should pay for Beyond Meat to ensure it does not destroy shareholder value. Management's flexibility and willingness to alter the company's go-to-market strategy during the era of COVID-19 has the potential to pay off handsomely over a multiyear horizon. 4. Beyond Meats case also shows that a marketing strategy is not fixed: it has to evolve along with the companys positioning. If you think about the first time you heard about Beyond Meat it very well many have been when the product launched at a large fast food chain. Lets have a look at their most serious competitor: Impossible Foods. The original packaging did not display vegetables, and the words meat and best in the products names were not chosen randomly. This is not by accident but instead by design. We hope this article helped you understand how crucial a good marketing strategy is for a companys success. Beyond Meats profitability ranks at the bottom of this peer group. Beyond Meats successes have inspired the giants to create new categories. Various trademarks held by their owners. Economic earnings, which account for the unusual items on the income statement and changes to the balance sheet, are negative $6 million and declining over the TTM, even as adjusted EBITDA is positive and rising. It doesnt matter what industry your brand is in theres always a chance consumers wont take to your product or service. Shares have fallen 10% since news onJune 25, 2020that McDonalds was discontinuing testing of a plant-based burger it dubbed the PLT made with a Beyond Meat patty in several Canadian markets. Figure 9: BYND Has Large Downside Risk: DCF Valuation Scenario. I also assume Beyond Meat achieves an 8% NOPAT margin, which equals the average of Beyond Meats and Kraft Heinzs TTM NOPAT margins. See all adjustments to Beyond Meats valuationhere. It sounds crazy, we know but its one of the reasons Beyond Meat's plant-based burgers have been so widely successful: they emulate real meat right down to the irresistible juiciness. our Subscriber Agreement and by copyright law. How? What can you learn from this? Though the firms revenue has improved from $298 million in 2019 to $401 million over the trailing-twelve-months, Beyond Meatscore earnings[1]have fallen from $6 million to $4 million over the same time. This does not boil down to just knowledge on slaughter houses, animal conditions, bacteria etc. The Double Distribution Canal: A Major Strength. Opinions expressed by Forbes Contributors are their own.